Performance-Based Pricing

Performance-based pricing, often used in legal and consulting services, is where the professional’s compensation is directly tied to the achievement of specific, agreed-upon results. In this model, the service provider assumes more risk but also stands to gain more if the performance goals are met or exceeded. The pricing is contingent upon success, such as a lawyer receiving a percentage of a litigation settlement. This model demonstrates the firm’s confidence in its ability to deliver and can be attractive to clients because it reduces their upfront financial risk. However, for the service provider, extensive due diligence is required before accepting a performance-based agreement to ensure a reasonable chance of success. The firm must be adept at calculating risks and balancing the portfolio of contingency cases to maintain financial stability. This pricing model promotes alignment of interests, as both client and service provider share the incentive for a successful outcome.